"Eating Your Seed Corn": A Note on New York State's Fiscal Policy from Lieutenant Governor Ravitch

By Ravitch, Richard | Albany Law Review, Winter 2010 | Go to article overview

"Eating Your Seed Corn": A Note on New York State's Fiscal Policy from Lieutenant Governor Ravitch


Ravitch, Richard, Albany Law Review


I. INTRODUCTION

When I think of the state of New York's finances, I often think of the term in farming "eating your seed corn." Before a farmer sells or eats the corn he has harvested, he puts aside part of his crop as seed for next year's planting. If be consumed his whole crop instead, he would be "eating his seed corn"--getting by in the short run, gambling on an upturn in his fortunes, and risking his long-term chances of survival.

For the past decade New York State, through its budgeting practices, has been eating its seed corn by acting only with an eye to the short term. The state essentially spent down its reserves and set aside little for the future. Now, faced with revenue declines, the state is challenged to weather the hard times.

II. FISCAL OUTLOOK

Budget Gaps in the Coming Years

The state is currently in a fiscal crisis which is expected to continue over the next few years. There are projected budget deficits of $8 to $9 billion in 2010-2011 and $12 to $13 billion in 2011-2012. (1) State obligations are expected to rise faster than revenues. The deficits will grow even larger in the next few years. New York is not alone; many other states are facing large and growing deficits. According to the Center on Budget and Policy Priorities, the states have faced, and will face, combined budget shortfalls estimated at $375 billion in fiscal years 2010 and 2011. (2)

III. HISTORICAL CONTEXT: BUDGET HISTORY

A. Structural Imbalance

To understand how New York arrived at this point, with projected budget deficits of $8 to $9 billion in 2010-2011 and $12 to $13 billion in 2011-2012, it is important to look at the state's recent budget history. Over the past ten years, the state's spending has increased at a rate 20% faster than its revenue growth.

[FIGURE 1 OMITTED]

The long-term gap between spending and recurring revenues is what budget specialists call "structural imbalance." This gap has widened in recessions and narrowed in good times. Figure 1 above illustrates the structural gap and shows how expenditures have outpaced revenues and have also grown faster than personal income growth.

Even in years of normal economic growth, the gap has been significant. Instead of limiting spending to normal income growth and building reserves in good times, the state has let spending rise in boom years--and stay at boom-year levels. Little has been set aside for the lean years that inevitably arise.

B. Non-recurring "One-shots"

To sustain spending that outpaces revenue growth, the state has used "one-shots," non-recurring actions--like borrowings, asset sales, the use of reserves, and accounting devices--which increase receipts or decrease expenditures temporarily, but do not change long-term revenue and expense patterns. Over the past decade the state has used at least $20 billion in one-shots to sustain its spending habits.

Some one-shots, like using reserves to fund spending in down years, are just good budget planning. Other one-shots are justified if they cover one-time expenses for important policy objectives or help to implement reforms whose savings will show up only in future years. But New York has often used one-shots to mask the structural deficits generated by spending trends that outpace reliable, recurring revenues.

One such one-shot was the $4.2 billion that the state received in 2003-2004 by issuing "tobacco bonds," which were financed by future payments owed to the state under a national settlement with tobacco companies.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

"Eating Your Seed Corn": A Note on New York State's Fiscal Policy from Lieutenant Governor Ravitch
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.